An EPC project missed its completion milestones and experienced cost escalations, resulting in Contractor claims that engineering progress was overstated at the time the contract was converted to lump sum. Baker & O’Brien analyzed records and opined on the accuracy of the engineering progress reported at conversion and the Contractor’s reliance on that progress to estimate its costs and schedule. We produced an expert report and gave oral testimony at the deposition proceedings and the arbitration hearing.

An engineering company (Engineer) and a construction company (Contractor) partnered to execute a large ethylene and polyethylene expansion project in North America. The partnership entered into an engineering, procurement, construction (EPC) contract with the facility owner to complete the project. The project experienced time and cost overruns, particularly during the final construction phase. The Contractor claimed misrepresentations by the Engineer at a critical point caused the actual project completion cost and duration to exceed the contracted amounts. The Contractor filed for arbitration against the Engineer for damages it allegedly incurred.

For the partnership, the Engineer agreed to design and procure all tagged equipment, while the Contractor agreed to procure bulk materials and construct the facility. The EPC contract was initially structured to be a target price contract with elements of a lump sum, fixed unit rates, and reimbursable scope. The parties anticipated the EPC contract would convert to a lump sum structure once the engineering design reached a certain stage.

The project scope increased for various reasons before the EPC contract conversion. During the conversion process, the Contractor relied on the Engineer’s reported progress and remaining scope to realign the plan and schedule and update the lump sum price to complete the project. However, the project completion encountered missed milestones, schedule delays, and cost escalations following conversion. The Contractor claimed it underestimated the completion scope and cost requirements because the Engineer misrepresented its engineering progress at conversion.

Baker & O’Brien was engaged to review and analyze the available records and provide our observations and opinions on whether the:

• Engineer over-reported engineering progress at conversion;
• Contractor relied on the Engineer’s reported engineering progress to estimate costs and schedule;
• EPC contract Rules of Credit supported the reported engineering progress at conversion;
• Rules of Credit complied with industry practice;
• Actual material quantities differed substantially from the quantity estimates at conversion (and if so, why?).

We submitted an expert report and gave oral testimony at deposition proceedings and the arbitration hearing.